Of more than a dozen U.S. partners who have left global megafirm Dentons so far this year, nearly half are onetime McKenna Long & Aldridge partners in Atlanta. The departures follow the expiration of an unusual “commitment agreement” that legacy McKenna equity partners signed before that firm’s 2015 merger with Dentons, saying they would forfeit their capital contribution if they left for another firm before 2018.
At least 13 partners from Dentons’ U.S. branch left in January, including six from the Atlanta office, which had been McKenna’s headquarters before its July 1, 2015 merger with Dentons. By contrast, Dentons US has added only one lateral partner so far this year.
Dentons US has about 935 lawyers and lobbyists. The firm is structured as a Swiss verein with multiple independent branches and about 7,500 lawyers globally, making it the world’s largest law firm.
The commitment agreement, which allowed Dentons to effectively lock in McKenna equity partners for 2½ years, was introduced after an abortive early merger attempt in late 2013 and after McKenna lost about 100 lawyers who decided in the months preceding the 2015 deal that they did not want to be part of it.
Now that the agreement has expired, additional legacy McKenna partners in Atlanta may also be planning to depart, according to seven people with knowledge of the Atlanta legal market.
“That [agreement] is what handcuffed so many partners to the law firm,” said one person familiar with the situation. But now the handcuffs are off. “I think you’re going to see a lot of former McKenna people leave,” the person added.
“Now they can run as quick as they want,” another person said.
A number of firms in Atlanta have known about the commitment agreement and how it affected legacy McKenna partners, according to several people familiar with the situation.
“They were waiting until Dec. 31 so they could poach partners from Dentons,” one said. “There is going to be some fallout for some period of time,” another predicted.
Dentons acknowledged in a statement that the commitment agreement has expired.
“Dentons’ leadership in Atlanta and a significant majority of former MLA partners are committed to strong growth in Atlanta going forward,” the firm said. “Dentons has a long history in Atlanta and many talented lawyers, including several of our national practice leaders.”
“The conclusion of 2017 brought with it the end of the transition period for partners who joined Dentons as part of the 2015 merger with McKenna Long & Aldridge. As such, we anticipated that certain partners would exercise their option to leave, and we wish them well,” the statement said.
Three of the six legacy McKenna partners in Atlanta who left Dentons in January, Ann-Marie McGaughey, Wayne Bradley and Petrina McDaniel, have opened an Atlanta office for another global megafirm, Squire Patton Boggs, bringing three Dentons associates with them.
Meanwhile, Dentons M&A partner Jeremy Silverman joined Alston & Bird; intellectual property partner Bill Long joined Smith Gambrell & Russell; and litigation partner James Manley Jr. went to Troutman Sanders. All six are partners at their new firms.
The former Dentons partners in Atlanta either declined to comment or did not return a call for this story.
McKenna equity partners individually signed the 2015 commitment agreement, which specified that if they left for another firm before Jan 1, 2018, they would forfeit both the capital they had already contributed to the legacy firm and additional payments to cover Dentons’ higher capital requirement.
The agreement arose from McKenna’s eleventh-hour decision not to merge with Dentons, which McKenna’s leaders announced while the firm’s partnership was voting on the deal in late 2013.
“This time, we wanted to make sure they were comfortable that we were committed to do this. We decided the best way to demonstrate that was by signing the commitment letter,” McKenna’s chairman, Jeff Haidet, who is now Denton’s U.S. chairman, told the Daily Report in April 2015, when the two firms announced that they were merging.
In these times of “excessive lateral moves,” said legal consultant Brad Hildebrandt of Hildebrandt Consulting, “firms have been trying to find a way so that there is not a lot of financial impact if they bring some people in and they leave shortly thereafter.”
Hildebrandt, a veteran adviser on numerous law firm mergers, noted that he was speaking generally and not specifically about Dentons.
Outside of the legal profession, companies often use noncompete agreements that restrict departing workers from competing against their former employer for a specified amount of time. U.K. law firms employ a “garden leave” period, which is generally for six months.
But U.S. bar associations and courts usually do not allow noncompete agreements for law firms, saying they prevent clients from engaging the lawyer of their choice.
“It’s not uncommon for a firm to try to protect itself from a cash drain, especially after investing in a merger or large group, to keep people from leaving too quickly,” Hildebrandt said.
These days, firms commonly stipulate a delay in the return of partners’ capital in their partnership agreements, Hildebrandt said, adding that spreading reimbursements out over three years has become typical.
However, requiring partners who leave before a certain time to forfeit their capital altogether is more unusual, he said.
The Daily Report obtained a copy of the 2015 commitment agreement, which required McKenna equity partners to make an additional capital contribution to Dentons on top of what they’d already paid in to McKenna to meet Dentons’ higher capital requirement.
Dentons arranged a line of credit with Citibank so the McKenna equity partners could borrow the extra money, which was assessed proportionate to individual compensation.
If they were to leave before Jan. 1, 2018, for another firm, each of the incoming McKenna equity partners agreed that they would—at Dentons’ discretion—forfeit the capital they’d already paid and “remain responsible for [their] share of the principal and interest repayment of any incremental capital.”
In return, they were relieved of any obligation to pay for the legacy Dentons US nonqualified pension plan until the end of 2018.
Partners who retired or who left for jobs in-house with clients, in academia or government would not have to forfeit their capital, according to the agreement. Partners were also exempted if their compensation was reduced by 20 percent or more in any year.
With the arrival of the new year, they no longer have to worry about getting their capital back.
According to the document, legacy McKenna equity partners leaving through June 30 will get their capital back over a two-year period, per the terms of the legacy McKenna partnership agreement.
Any former McKenna equity partners who leave after June 30 will be refunded their capital over a three-year period, under the terms of the Dentons partnership agreement.
When the McKenna-Dentons merger finally consummated in mid-2015, a lot of lawyers had already elected to leave McKenna rather than join Dentons.
Dentons’ global chief executive Elliott Portnoy and other firm leaders have said that flat demand was their impetus for assembling the world’s biggest firm. Having a global network of lawyers in an array of practices, they say, is a way to increase market-share and land work that would not have gone to the individual, predecessor firms.
But partners who chose to leave McKenna in the run-up to the merger told the Daily Report and sibling ALM publications that they were concerned about potential client conflicts and rate increases. They said their practices required neither the greater geographic reach nor the increased overhead they feared would come from joining a legal juggernaut like Dentons.
McKenna’s was a roughly 520-lawyer firm in 2013, when its leaders began talking to Dentons about combining firms. It numbered about 320 lawyers by the time the merger went into effect less than two years later.
McKenna lost about 100 lawyers, including at least 40 partners, after the firms announced the merger on April 8, 2015, mostly in Atlanta, Washington and California. It had already lost another 100 lawyers over the course of 2014, after its initial equity partnership vote to merge with Dentons was scuttled.
Right before the 2015 merger, Ohio-based Am Law 100 firm BakerHostetler transformed its Atlanta office from a small 11-lawyer intellectual property outpost into what is now a full-service, 65-lawyer office after landing a group of 30 health care and corporate lawyers from McKenna.
Meanwhile in Washington, Covington & Burling gained a 19-lawyer team of government contracts lawyers from McKenna, and in Los Angeles, Pillsbury Winthrop Shaw Pittman won a 13-lawyer team of government contracts lawyers and litigators.
Smaller in the States
Dentons has experienced a notable amount of churn among partners in its U.S. branch since the merger with McKenna.
At that time, the firm said it had about 6,600 lawyers and professionals globally, with 1,100 of them in 21 U.S. offices. In the last three years, Dentons has combined with more than 30 law firms, according to the firm, increasing its global head count to about 7,500. Dentons U.S. currently has 936 lawyers and professionals in 24 offices.
Dentons US shed about 100 partners in the 2½-year period from the merger through the end of 2017, both legacy McKenna partners and other partners in the firm’s U.S. offices, according to data from ALM Intelligence’s Legal Compass. During the same period, it added roughly 50 partners, based on Legal Compass data.
The firm lost about a quarter of the 100 partners in the early months of 2017 from a mix of voluntary departures and layoffs.
In January of last year, Dentons had asked at least 20 U.S. partners to leave after the firm failed to meet its 2016 budget, giving them a 90-day grace period to find another position, sibling publication The American Lawyer reported last April.
About 24 partners left from January through April 2017, some voluntarily and some involuntarily, according to The American Lawyer.
That included Dentons’ Atlanta managing partner, Joe Blanco, who last March became the general counsel of Crawford & Co., the Atlanta-based insurance claims manager. Another legacy McKenna partner, Sharon Gay, succeeded him as Atlanta managing partner.
Dentons’ Atlanta office now has 78 lawyers, including 41 partners. That’s down from 100 lawyers in Atlanta when the merger with Dentons took effect.